Best Principal Hybrid Mutual Funds

Principal Mutual Fund is a part of the Principal Financial Group, a global investment management institution headquartered in the US. This AMC began operations in 2000, committed to providing investment solutions to retail and institutional investors in India. It is one of the country’s leading AMCs, serving over 5 lakh customers and working with 20,000 enlisted distributors.

AMC offers more than 15 mutual fund schemes to meet diverse investment objectives. It includes equity, debt, fund of funds, and the best Principal hybrid mutual funds.

Hybrid funds invest in equity and debt instruments in varying proportions based on their category. This investment involves a balance of risk and returns. Specifically, it lowers risk factors accompanied by equity funds and offers higher returns than a debt fund. 

Hybrid funds can be broadly distinguished into two types – equity-based and debt-based. Usually, equity-oriented funds invest in equity and related instruments. On the other hand, debt-based funds allocate the majority of their assets to debt securities. There are various different classifications under this type. 

A choice of a hybrid fund depends on the investor’s risk preference and objective. Although it is claimed to involve lower risk, a hybrid fund is vulnerable to fluctuating share prices and interest rates. A debt-oriented fund is more susceptible to interest rate changes, whereas share price movements influence an equity-based scheme. 

If the stock prices fall, NAVs will drop according to the quantum of equity investment. When the interest rate rises, NAVs will decrease per the proportion of investment in debt securities. However, risk and returns from shares are based on distinct hybrid fund categories.

Best Principal hybrid mutual funds feature approximately 4 schemes that can be opted based on investment preference including, returns, risk and investment horizon. Principal offers these schemes in balanced advantage, equity savings, equity growth, and arbitrage kinds.

Besides classifying the best Principal hybrid mutual funds, it is also important to understand taxability before choosing a scheme. 

Taxability

Long-term Capital Gains Tax: An equity-oriented hybrid fund held for over a year is liable for long-term capital gains tax at 10% without indexation. At the same time, a hybrid fund invested in fixed instruments serves as a debt fund. They are eligible for long-term capital gains tax of 20% after indexation if held for over three years and above. 

Short-term Capital Gains Tax: An equity-oriented hybrid fund is eligible for 15% capital gains tax if units are held for less than a year. Gains from debt-based fund units held for less than 36 months will be added to an individual’s annual income and taxed per the applicable slab rate. 

TDS: If dividend earnings exceed Rs.5000 in a year, a TDS of 10% is applicable. 

You can also consider a few things before making an informed decision about choosing your best Principal hybrid mutual funds.

Factors to Consider Before Investing

Investment objective: An investor needs to analyse his/her financial goal and the period within which they want to achieve it before opting for the best Principal hybrid mutual funds. 

Risk appetite: Hybrid funds come with combined investment in two instruments – equity and debt. Hence, they are less risky than pure equity funds but riskier than debt funds. Usually, an equity-oriented hybrid fund will be more vulnerable to market risks, meaning constant share price fluctuations will drive its NAV up and down. A debt-based fund is more susceptible to credit, interest rate, and inflationary risks. Individuals may want to ascertain their risk-bearing capacity to select a hybrid MF scheme suitable to them. 

Past record evaluation: It is essential to monitor the past performance of hybrid funds by checking their returns over the years. Although a scheme might not replicate its past performance, evaluating the same can show it trended under different market conditions. Accordingly, one can opt for the best Principal hybrid mutual fund.

Expense ratio: Before opting for the top Principal hybrid mutual funds, it is imperative to assess the expense ratio. It is an amount charged for managing hybrid funds and is deducted from generated returns. 

Time horizon: A investor needs to determine the time horizon before investing in any fund. For hybrid funds, an investment period of five years is necessary to reap the full benefits.

Returns: Returns from hybrid funds depend on the proportion of equity and debt exposure. An equity-based scheme’s returns will be more influenced by movements in the stock market. A debt-oriented fund’s earning is more susceptible to changes in interest rates and repayment by an issuing company. Hence, it is important to assess the return factor from this fund before opting for the best Principal hybrid mutual funds 2023.

Fund manager’s expertise: A fund manager is responsible for implementing a scheme’s investment strategy and managing asset allocation. It is imperative to review a fund manager’s experience to assess whether they are equipped to navigate the severe market fluctuations. 

It is difficult for budding investors to determine the best Principal hybrid mutual funds. But, keeping in mind all these points mentioned above and understanding the investment market can help navigate and select the hybrid fund scheme suitable for their financial goal.